Wells Fargo sees labor market on a 'knife’s edge' amid untimely shutdown

[People form the core of an organization. Formation of company personnel, staffing. Hiring employees, recruiting staff. Human resources. Grouping and consolidation, self-organization. Social processes.]
Andrii Yalanskyi

Wells Fargo warned that the federal government shutdown is complicating an already fragile picture for the U.S. labor market. The lack of timely economic data comes as policymakers, investors, and businesses are trying to gauge whether employment conditions can withstand slowing growth.

In an investor note, the investment institution pointed out that the jobs market has shown signs of strain for months. The unemployment rate has crept higher to the upper boundary of what economists consider “full employment.”

While the increase has been gradual, Wells Fargo emphasized that it is occurring alongside a sharp decline in labor force participation and a notable slowdown in hiring momentum.

“Thus, while the jobs market is not unraveling, it continues to teeter on a knife's edge. Strengthening in end-demand could unleash pent-up demand for workers, but a further moderation or negative shock to growth could tip the scales the other direction, setting off a negative feedback loop between income, spending and hiring,” Wells Fargo said.

The firm maintained that, barring a prolonged economic disruption, its base case remains that the labor market will endure current headwinds. Still, the shutdown’s delay of key data releases adds another layer of uncertainty for markets and policymakers.

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